Limit theorems for BSDE with local time applications to nonlinear - PowerPoint PPT Presentation

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Limit theorems for BSDE with local time applications to non–linear PDE M’hamed Eddahbi Universit´ e Cadi Ayyad, Facult´ e des Sciences et Techniques D´ epartement de Math´ ematiques, B.P. 549, Marrakech, Maroc. ´ Equipe d’Analyse Math´ ematique et Finance Joint work with Y. Ouknine Based on Stoc. Stoc. Reports 73, (1-2), 159–179, 2002 New advances in Backward SDEs for financial engineering applications Tamerza Palace, Tunis, October, 25–28, 2010 M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction We prove limit theorems for solutions of BSDEs with local time. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction We prove limit theorems for solutions of BSDEs with local time. Those limit theorems will permit us to deduce that any solution of that equation is the limit in a strong sense of a sequence of semi–martingales which are solutions of ordinary BSDE. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction We prove limit theorems for solutions of BSDEs with local time. Those limit theorems will permit us to deduce that any solution of that equation is the limit in a strong sense of a sequence of semi–martingales which are solutions of ordinary BSDE. comparison theorem for BSDE involving measures is discussed. As an application we obtain, with the help of the connection between BSDE and PDE, some corresponding limit theorems for a class of singular non–linear PDE and a new probabilistic proof of the comparison theorem for PDE. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction BSDEs : Bismut 1976 in the linear case. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction BSDEs : Bismut 1976 in the linear case. Non–linear BSDE : Pardoux and Peng in 1990. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE Introduction BSDEs : Bismut 1976 in the linear case. Non–linear BSDE : Pardoux and Peng in 1990. Motivations : BSDE and mathematical finance (El Karoui et al. 1997), Probabilistic interpretation of PDE Pardoux-Peng, Stochastic differential games and stochastic control : Hamad` ene-Lepeltier 1995 etc Quadratic BSDE (Imkeller, CIRM 2006) M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Consider the following particular BSDE � T � T f ( Y s ) Z 2 Y t = ξ + s ds − Z s dW s . (2.1) t t From the equality d � Y , Y � t = Z 2 t dt and from occupation time formula, we have, for any bounded measurable function f � t � ∞ f ( Y s ) Z 2 L a s ds = t ( Y ) f ( a ) da . 0 −∞ Set ν ( da ) = f ( a ) da , then (2.1) takes the form � � T ( L a T ( Y ) − L a Y t = ξ + t ( Y )) ν ( da ) − Z s dW s (2.2) R t M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time The process L a t ( Y ) is the local time of the continuous semi-martingales Y and can be expressed by Tanaka’s formula as � t L a t ( Y ) = | Y t − a | − | Y 0 − a | − sgn ( Y s − a ) dY s 0 and  1 for x > 0  sgn ( x ) = 0 for x = 0  − 1 for x < 0 . It is proved by Dermoune et al. ’99 that there exists an adapted couple ( Y , Z ) solution to equation (2.2) under the following conditions : (H1) The r.v. ξ belongs to L 2 (Ω , F T , P ). (H2) The measure ν is bounded and | ν ( { x } ) | < 1, ∀ x in R . M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Our aim in this talk is to prove some limit theorems for the class of BSDE of the form (2.2), that are some kind of the stability properties for BSDEs. We show that a solution to (2.2) can be obtained as a limit of sequence of solution to (2.1). To prove a comparison theorem for the above singular BSDE, As application : limit theorems in the monotone case. We deduce limit theorems for a class of non–linear PDEs involving the square of the gradient and a comparison theorem is discussed for this PDEs. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time The main tool to study the BSDE (2.2) is the Zvonkin’s transformation . Let us set � 1 + ν (( { y } )) � � f ν ( x ) = exp (2 ν c (( −∞ , x ])) 1 − ν (( { y } )) y ≤ x where ν c is the continuous part of the measure ν . If f is of bounded variation (increasing in our case), f ( x − ) will denote the left limit of f at a point x and f ′ ( dx ) will be the bounded measure associated with f . M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time It is well known that the function (since ν is bounded) that f ν ( · ) is increasing, right continuous and satisfies 0 < m ≤ f ν ( x ) ≤ M ∀ x ∈ R for some constants m , M . Moreover f ν satisfies f ′ ν ( dx ) − { f ν ( x ) + f ν ( x − ) } ν ( dx ) = 0 . Set � x f ν ( y ) dy and g ν ( x ) = f ν ( F − 1 F ν ( x ) = ν ( x )) . 0 The functions F ν and F − 1 are Lipschitz functions. ν M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Let M 2 T ( R × R d ) denote the space of F t –prog. meas. proc. ( Y , Z ) satisfying ( ?? ) Proposition ( Y , Z ) ∈ M 2 T ( R × R d ) solves (2.2) iff � � � � F ν ( Y ) , Z Y , ˜ ˜ Z = 2 { f ν ( Y ) + f ν ( Y − ) } solves ˜ ξ = F ν ( ξ ) the BSDE � T Y t = ˜ ˜ ˜ ξ − Z s dW s , (2.3) t M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Proof. The proof is based on Tanaka’s formula to F ν ( Y t ) with the symmetric derivative of the convex function F ν instead of its left derivative. Remark Stroock and Yor (1981), Le Gall ’84) and Rutkowski ’90 have already used the transformation F ν to study the SDE � t � L a X t = x + σ ( X s ) dW s + t ( X ) ν ( da ) . 0 R M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Theorem Under the assumptions (H1) and (H2) , there exists a unique solution ( Y ν , Z ν ) belonging to M 2 T ( R × R d ) for the equation (2.2). Moreover t = F − 1 Y ν ( E [ F ν ( ξ ) / F t ]) , 0 ≤ t ≤ T . ν M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea

Introduction BSDE with singular drift Limit theorems for BSDEs Comparison theorems for BSDEs Applications to non–linear PDE BSDE with local time Example Let ν = αδ , where | α | < 1 . Then f ν ( x ) = 1 for x < 0 and f ν ( x ) = 1+ α 1 − α for x ≥ 0 . The function F ν ( x ) = x for x < 0 and F ν ( x ) = 1+ α 1 − α x for x ≥ 0 . The solution of the BSDE � T Y t = ξ + α L 0 T ( Y ) − α L 0 t ( Y ) − Z s dW s , t where ξ ∈ ] − ∞ , 0[ or ξ ∈ [0 , ∞ [ is given by Y t = E [ ξ / F t ] , and L 0 t ( Y ) = 0 for all 0 ≤ t ≤ T. M’hamed Eddahbi Limit theorems for BSDE with local time applications to non–linea